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The Best Ethereum ETF in the UK [2024]
Following the recent approval of the first Bitcoin ETFs in the US, people's attention has since turned towards the possibility of a spot Ethereum (ETH) ETF coming to market, especially given the news of recent ETF applications from investment powerhouses such as Fidelity and BlackRock.
But despite the historic decision of the SEC to authorise Bitcoin ETFs, it seems that an Ether Spot ETF may still be far away, according to Steven McClurg, the Chief Investment Officer at Valkyrie. That being said, some analysts predict that an Ethereum ETF could be authorised as early as May.
Either way, many UK investors are desperately looking to gain more clarity as to what their current options are in terms of a spot ETF for Ether, and the good news is that even though the Financial Conduct Authority (FCA) has not yet approved Ethereum ETFs, there are alternative ways to gain exposure to the second largest cryptocurrency by market capitalisation.
This article will therefore seek to provide more clarity by providing an overview of Ethereum ETFs, and the options currently available to UK investors.
In this blog post, we’ll take a look at:
- What is an Ethereum ETF
- Benefits
- Inconveniences/Risks
- Are Ethereum ETFs Regulated in the UK
- Crypto Strategies - UK Alternative to Ethereum ETFs
- Future of Ethereum ETFs in the UK
Let's get right into it!
What is an Ethereum ETF?
An Ethereum ETF is an exchange-traded fund that is designed to track the performance of Ether (the second largest cryptocurrency by market cap) in order to provide investors with a way of gaining exposure to its price movements; and without the need to purchase the digital asset directly. In other words, this financial instrument essentially replicates the market performance of Ether so investors can buy or sell shares on stock exchanges in a regulated and secure manner.
Ether ETFs can be split into two types:
- Spot Ethereum ETFs: This type of ETF holds ETH directly, and mirrors the current market price of Ether on the spot market. What this investment vehicle aims to do is provide investors with exposure that tracks the real-time price fluctuations of Ethereum, and in a way that is fully regulated and secure.
- Futures Ethereum ETFs: Instead of holding the cryptocurrency itself, these ETFs invest in Ethereum futures contracts. These are agreements to buy or sell Ethereum at a predetermined price at a future date, allowing speculation on the future price movements of ETH. Futures Ethereum ETFs enable investors to engage with Ethereum's market dynamics without the complexities and risks associated with directly managing the digital asset.
However, like any investment (especially in the volatile cryptocurrency market), Ethereum ETFs come with their risks. Investors should proceed with caution, understanding that while there are opportunities for gains, the possibility of losses is also significant.
Benefits
Ethereum ETFs offer an array of different benefits, and this makes them especially attractive for those wanting to diversify into the crypto market without the hassle of direct ownership.
Firstly, an obvious benefit is accessibility and liquidity. Because Ethereum ETFs allow for shares to be traded on a traditional stock exchange (and through regular brokerage accounts), getting exposure to Ether is incredibly easy and stress free. Moreover, because this allows for the masses to get involved, liquidity (in theory) is never an issue.
In addition to this, Ether ETFs allow for peace of mind due to regulatory oversight. Because Ethereum ETFs can not be launched without meeting strict regulatory guidelines, they offer more security and assurance than what the regular crypto market can offer; which is often decentralised and unregulated. Therefore, this reassurance can be the difference between whether many willing investors diversify into Ether or not.
An ETF built around Ether is also ideal for those who are banking big on the future of crypto, and who consequently want to diversify into the exciting Web3 industry. Therefore, by investing into the second largest cryptocurrency by market cap through an ETF, investors will be able to gain exposure to the crypto market's potential success; while simultaneously reducing risk by spreading their investments across other asset classes/industries.
Inconveniences/Risks
As can be seen from above, Ethereum ETFs present a promising opportunity. But they are not without inconveniences/risks either.
For one, because ETFs are centralised financial products by nature, proponents of decentralisation might be at odds with a cryptocurrency like Ethereum being offered to them in such a regulated manner as it does not allow for a trustless environment; a fundamental aspect of crypto.
There is also the limited profit potential to consider. Although Ethereum ETFs do indeed provide exposure to ETH price movements, they may not offer the same profit potential compared to directly investing in the cryptocurrency. This is due to investors in ETFs missing big opportunities as a result of market volatility providing fluctuations that can bring about substantial gains (and losses) through quick trades. Fees associated with each ETF product can also further diminish returns for investors.In terms of human error, some might also argue that the active management of an Ethereum ETF will have operational risks, especially when it comes to complex mechanisms like rebalancing, or having to deal with security breaches. The concern here is that by entering into an ETF, you at the mercy of those managing it, meaning may constantly
Are Ethereum ETFs Regulated in the UK?
As already mentioned, the FCA (the UK's financial regulatory body) has not yet approved a spot Ethereum ETF for the UK market, meaning that as of right now, there are no Ether ETFs readily available for UK investors. It is important to note that spot Ethereum ETFs are not regulated in the US either, meaning this is an ongoing global issue, and not just specific to the UK.However, UK investors shouldn't lose hope just yet for two main reasons. Firstly, because there’s still an opportunity that spot ETFs may be regulated in the US in the not-so-distant future as a result of recent applications, it's possible that UK regulators could follow suit if they see enough evidence that an Ether ETF operates appropriately according to their frameworks.
But for those who are absolutely desperate to gain exposure to Ethereum as soon as possible, there happens to be a great alternative that allows investors to gain exposure to ETH with full ownership of their assets, and with the benefit of having them managed.
Introducing crypto strategies.
Crypto Strategies - UK Alternative to Ethereum ETFs
Crypto strategies are investment vehicles that function similarly to Ethereum ETFs, as both are focused on mirroring the mid to long-term performance of ETH, and both usually spread out risk in order to create a diverse portfolio that will grow over time and give consistent returns. But crypto strategies offer investors something else - they give you hands-on guidance every step of the way!
Crypto strategies grant individuals enhanced oversight and insight into their investments. Participants can actively monitor the composition of their portfolios, understanding precisely how their Ethereum and other cryptocurrency investments are allocated, and have the ability to see the past and present performance of each strategy.
For those seeking a crypto strategy platform, ICONOMI is a notable and FCA-regulated crypto strategy platform within Europe that has been live since 2016. What's more, it includes strategies with significant investments in Ethereum, providing a direct pathway to gaining exposure
Below is an example of a crypto strategy that can allow for exposure; albeit somewhat diluted:
1) Stable WCI Strategy
One readily available strategy is the 'Stable WCI' strategy, which is designed to provide exposure to an array of different cryptocurrencies, including Ethereum.
Whilst this automated strategy focuses on seven cryptocurrencies, it has a sizeable portion of Ethereum (28.10%), alongside Chainlink (28.17%), Oasis Network (15.27%), Injective Protocol (13,73%), THORChain (5.80%), and two others (8.83%). As can be seen, although this strategy is not entirely focused on Ether, it still allows UK investors to gain sizeable exposure to the cryptocurrency, and in a regulated yet flexible manner.
With regards to its performance, Stable WCI has an impressive annualised return of 54.95%, and a volatility rate of 4.72 % since inception. Despite experiencing a maximum drawdown of -91.85%, the strategy has still performed greatly, having seen a +214.08 % return the past year. But be aware, that although recent indicators have been positive, losses are always possible with speculative financial instruments, so you should still approach this strategy carefully.
But for those who cannot wait until an Ether spot ETF is approved in the UK, this strategy provides an excellent avenue for adding Ethereum to your portfolio.
Future of Ethereum ETFs in the UK
The truth is there is no way to know when an Ethereum spot ETF will be readily available for UK investors. The good news, however, is that we see evidence that things are starting to move in the right direction; as seen with the recent Bitcoin spot ETF approval by the SEC. This was a far-fetched notion once upon a time, so to see one of the biggest financial regulators in the world giving approval for a spot Bitcoin ETF bodes well for a possible Ether spot ETF.
In the meantime, UK investors have two choices - wait patiently for regulatory approval by the FCA, or compromise by exploring alternative investment avenues like crypto strategies that allow for people to gain exposure to Ethereum immediately; albeit alongside other cryptocurrencies.
The choice is yours.
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